IMF Completes Third Review of Colombia's Extended Arrangement

The Executive Board of the International Monetary Fund (IMF) completed today the third review of Colombia's performance under the Extended Fund Facility (EFF)1 arrangement approved on December 20, 1999 (see Press Release No. 99/63) for SDR 1.96 billion (about US$2.44 billion). The completion of the review allows Colombia to draw, if needed, up to SDR 1.2 billion (about US$1.5 billion) from the IMF. To date, the country has not made any purchases under this arrangement.

"Colombia has achieved considerable macroeconomic stabilization since 1999 when it adopted the present stabilization program. Inflation has been reduced significantly, fiscal consolidation has advanced, and significant structural reforms have been introduced. With full implementation of the program for 2002, the authorities will have come a long way toward achieving the objectives of their program, despite the difficult domestic security situation and the recent worsening of the global economic environment.

"The Colombian authorities recognize that the reform effort and the fiscal consolidation process need to be continued beyond 2002 to strengthen further the control over the public debt dynamics and to consolidate the gains in macroeconomic stabilization. They agree that it is important that the pension reform be broad based, the fiscal policy recommendations to be made by the Public Revenue Commission be acted upon, and that the finances of the territorial governments be strengthened further.

"The banking system has been strengthened since the serious difficulties of 1998/99. The authorities are commended for their actions to raise prudential norms and for their recent efforts to improve further the performance of the system by taking important steps to strengthen the mortgage banks. As regards the remaining public banks (except Banco Agrario), the authorities are encouraged to pursue their preparation for privatization or liquidation.

"While Colombia's external competitiveness has improved considerably, helped by a real depreciation of the peso since the late 1990s, the country faces challenges related to a near-term decline in oil production and weakness in the international coffee market. These challenges underscore the need to continue the structural reform effort in order to enhance the productivity of the Colombian economy. Progress in the reform initiative to enhance labor market flexibility will be important," Mr. Aninat said.

1 The EFF is an IMF financing facility that supports medium-term programs that seek to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems. The repayment terms are 10 years with a 4½-year grace period, and the interest rate, adjusted weekly, is currently about 3.8% a year.